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FWDB: October 2018 Portfolio Manager Review

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent standardized and month-end performance, please click www.advisorshares.com/fund/fwdb.

Performance Review

During October, both long-term yields and short-term yields fell compared with to the performance of previous months, while the yield curve continued to flatten. Fortunately, underlying business fundamentals, such as corporate earnings and macroeconomic indicators, remained positive while the Fed implemented another interest rate hike.

FWDB underperformed its benchmark, Bloomberg Barclays US Aggregate Bond Index, in October with a return of -1.60% in NAV while the benchmark returned -0.79%.

Source: Morningstar; as of 10/31/2018.

FWDB provides exposure to thousands of bonds across the investable bond universe. To understand the driving factors, it is important to recognize broader macroeconomic factors that affect bonds to understand the attribution behind performance.

Convertible bonds have attributes of both bonds and common shares, and in a high rate environment, convertibles can at times profit amidst uncertainty. This is due, in part by, the nature of rising interest rates lowering bond value, which incentivizes corporations to buy back issued bonds at a discount before issuing newer bonds to take advantage of this fundamental relationship. Through October, our holdings in convertibles drug down FWDB’s performance with a return for investors of -6.42% NAV return.

Emerging markets continued its year-long trend of volatility with a return of -0.91%. This is due in part by a fall in oil prices, uncertain trade relations, and other economic factors.

Top 10 Holdings

FWDB Holdings (as of 10/31/18)

Ticker

Current Portfolio Weight

Oct. Return (NAV)

FUNDAMENTAL INVESTMENT

PFIG

17.88%

-0.56%

BARCLAYS CONVERTIBLE SECURITIES ETF

CWB

12.26%

-6.42%

HIGH YIELD ETF

HYLD

11.81%

-1.45%

EMERGING MARKETS CORP BOND

EMCB

11.80%

-0.91%

FINANCIAL PREFERRED

PGF

11.55%

-1.27%

SENIOR LOAN ETF

BKLN

8.03%

-0.26%

VARIABLE RATE PREFER

VRP

7.84%

-1.59%

FLOATING RATE BOND ETF

FLOT

4.02%

0.12%

VANGUARD MORTGAGE-BACKED SECURITIES ETF

VMBS

3.95%

-0.63%

VANGUARD SHORT-TERM TREASURY

VGSH

3.01%

0.15%

GLOBAL SHORT-TERM HI

PGHY

2.97%

-0.43%

NATIONAL AMT-FREE MUNICIPAL BOND ETF

PZA

2.92%

-0.89%

Source: Morningstar

For the month of October, no significant trades or reallocation were made to FWDB.

Outlook

Looking forward, we expect the Fed to carry out its plans of gradual rate hikes. With continued strength in corporate earnings across the board, we project further appreciation in FWDB in the months to come despite risks of the Fed’s rate action running into potentially excessive territory. We do not believe the flattening yield curve over this time warrants genuine worries of impending recession, but we are also watching to see if future economic activity may be slowed because of rate activity. It is our intent that exposure to large segments of the investable bond universe will give suitable exposure and diversification that investors can benefit from in the months to come, and we are excited for future growth within our

Respectfully,

The Madrona Funds Portfolio Management Team
AdvisorShares Madrona Global Bond ETF (FWDB) Portfolio Manager

Definitions:

Bloomberg Barclays Capital Aggregate Bond Index measures the performance of the U.S. investment grade bond market. One cannot invest directly in an index.

Yield is the income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.

30-Day SEC Yield (Standardized Yield) is an annualized yield that is calculated by dividing the investment income earned by the Fund less expenses over the most recent 30-day period by the current maximum offering price.

Subsidized Yield reflects fee waivers and/or expense reimbursements recorded by the Fund during the period. Without waivers and/or reimbursements, yields would be reduced.

Unsubsidized Yield does not adjust for any fee waivers and/or expense reimbursements in effect. If the Fund does not incur any fee waivers and/or expense reimbursements during the period, the 30-Day Subsidized Yield and 30-Day Unsubsidized Yield will be identical.


Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.advisorshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. ETNs have a maturity date and generally, are backed only by the creditworthiness of the issuer. The value of an ETN may be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in the underlying market (e.g., the commodities market), changes in applicable interest rates, and changes in the issuer’s credit rating and economic, legal, political or geographic events that affect the market. Other Fund risks include market risk, equity risk, early closing risk, liquidity risk and trading risk. The Fund will be subject to the risks associated the Underlying ETFs’ or ETP’s investments such as commodity risk, concentration risk, credit risk, fixed income risk, high yield risk, income risk, interest rate risk, and investment risk.

Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times.

Holdings and allocations are subject to risks and to change.

The views in this commentary are those of the portfolio manager and may not reflect his views on the date this material is distributed or anytime thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.